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Budget Process Reform in the President’s Budget

Welcome to our fourth installment in our FY 2012 budget blog series! In this one, we'll focus on any budget process proposals in the budget.

Chapter 14 of the Analytical Perspectives volume of the President’s FY2012 budget is probably among the least read, even among die-hard budgeteers. But this chapter on “Budget Process” can provide important insight into how committed an administration is to fiscal responsibility and reform. While process reforms are not by themselves a panacea for today’s broken budget, they can be an important first step, and are a necessary part of longer-term success.

Today, The Bottom Line takes a few moments to comment on three of the Administration’s proposed budget process reforms:

Renewing statutory Pay-As-You-Go (PAYGO)

Making the Transportation Trust Fund Mandatory

Allowing for Expedited consideration of certain rescission proposals

We have long supported a comprehensive, statutory PAYGO rule. Responsible budgeting dictates that new spending or tax cuts be paid for by cuts or revenue increases elsewhere in the budget. This is the essence of PAYGO. We commend the President and Congress for returning to the principles of the 1990 Budget Enforcement Act, as well as for making PAYGO statutory. And offering proposals to pay temporarily for AMT patches (3 years) and the “doc fixes” (2 years) are important steps. But we continue our criticism that there are far too many exemptions and loopholes in the current PAYGO for it to be truly effective in forcing budget discipline. As the Peterson-Pew Commission on Budget Reform recommends in its recent report, an improved PAYGO would include essentially no exemptions, and would be accompanied by hard spending caps.

Perhaps one of the more intriguing budget process reforms comes under the heading “Budgetary Treatment of Surface Transportation Infrastructure Funding.” Here the administration proposes a new Transportation Trust Fund (TTF) that would replace and expand upon the existing Highway Trust Fund (HTF). It would include additional highway safety and transit programs, as well as passenger rail programs and the newly proposed National Infrastructure Bank.

Currently the HTF finances transportation projects through an odd hybrid of mandatory and discretionary spending accounts (more details on this hybrid treatment are here, beginning on page 149). Further, the HTF no longer (and hasn’t for a while now) collects enough revenues to pay for all the highway spending Congress undertakes. The Administration would implement a plan, first proposed by the President’s Fiscal Commission, to end the hybrid treatment and treat all TTF spending as mandatory. According to the Commission:

This hybrid treatment results in less accountability and discipline for transportation spending and allows for budget gimmicks to circumvent budget limits to increase spending. The Commission plan reclassifies spending from the Transportation Trust Fund to make both contract authority and outlays mandatory, and then limits spending to actual revenues collected by the trust fund.

Under this change, the Administration notes:

[R]ather than skirting the two mechanisms intended to control spending, discretionary funding allocations and PAYGO, the Fiscal Commission’s recommendation would establish surface transportation programs as subject to PAYGO.

From a budget process perspective the clarifying change in the budgetary treatment of transportation funding is long-overdue. Few members of Congress could explain how the HTF works as it is (other than the fact that it has borrowed billions from the Treasury in recent years to fund shortfalls) - it's confusing and the process is frequently gamed. But there is cause for concern in the proposed details of an expanded TTF. The proposed increases in highway spending and expansion of tranpostation funding in general would be paid for by a “placeholder revenue increase,” to be determined by Congress at some later date, but with no details about how – either through new or increased taxes or spending cuts. It’s unfortunate to see such a well-intentioned proposal tied to what could become a gimmicky new funding stream.

Finally, the budget contains (again) a proposal for enhanced rescission authority – a process by which the President could identify unacceptable spending items and then give Congress the opportunity to accept or reject the proposed deletions. Beginning with the House, on an expedited basis and without the possibility of amendments, Congress would accept or reject the president’s proposals. In the past a similar tool, the line item veto, was deemed un-constitutional. Giving Congress the opportunity to accept or reject the rescission proposal is intended to avoid a similar court ruling. CRFB has long supported this scalpel-like tool a useful addition to the deficit-fighting toolbox.

As with the overall budget, we see good and bad ideas in the handful of reforms reviewed here. In general, we prefer a package of stronger and more extensive budget process reforms that would get the budget on a more sustainable path to strengthen public finances. Such a set of “fiscal rules” would include measurable goals and benchmarks. Look to this site in the future for more on proposed fiscal rules that would implement a “permanent constraint on fiscal policy through simple limits on budgetary aggregates.”

Cut off foreign aid (funding) for at least 2 years. This will allow us to focus on the domestic aid to our national budget and it will also give other countries the opportunity to step up and lead the way for funding global projects, instead of always relying on the United States.

We should also consider enacting a lease payment for services rendered in foreign countries. For example, South Korea should be willing to pay the U.S. at least a portion of the funding required for our military presence. A business does not give away free funding, nor should the United States, at least we shouldn’t while the U.S. is trying to get back on its feet.